Ethics and the Federal Open Market Committee - Essay Example

Ethics and the FOMC The Federal Open Market Committee (FOMC) is a part of the larger Federal ReserveSystem which manages the open market systems that are present in the United States. The primary open marked being the government securities which can be bought by anyone. When it comes to making the national economic and monetary policy, the FOMC has the primary responsibility of setting the short term agenda as a target rate for the Federal Funds Rate. The FOMC also sets the agenda for the foreign exchange markets where it coordinates its efforts with the treasury (Amadeo, 2007). The FOMC was created as a result of laws passed by Congress in 1935. While the committee does not receive any funds from congress, it does cover its operating expenses via its investments in assets and through the fees it charges to various banks (FRBP, 2007). Ethically, speaking, the FOMC has a responsibility towards several stakeholders and it has a duty towards the country as well. At the same time, the committee has to balance the needs of the banks that can be regarded as the clients of the committee with the needs of the government which can be considered its owners. To better understand these ethical considerations, it is important to know what ethics really are and how they apply to the financial field. In purely lexical terms, the word comes from the Greek ethikos which can be translated as ‘based on habit’. However, in present useage, ethics is taken to be a major branch of philosophy which considers individual and collective actions as being right, wrong, good or bad. Therefore, in business and professional fields like finance, construction, public relations, advertising and many others, the application of ethical principles is understood to be a part of the positive practices which create and enhance the level of credibility for a government as well as business interests (Alexandra & Woodruff, 1990). The FOMC becomes unique as a body since it has to look at ethics from the side of the government as well as taking a financial view of matters. There is an entirely different branch of ethics connected with both of the issues the FOMC deals with. It may be said that the FOMC only has an indirect affect on the people and is mainly focused on providing a guide to the economy with research results but as far as ethics are concerned, even those who have absolutely no contact with others and are only conducting research have to follow ethical guidelines that govern how their research can be utilized (Scanlon, 2000). Thus, every individual from researchers to those who actually provide services have to follow ethical guidelines. Therefore, it is important to understand what ethical guidelines are in actual terms. Velasquez et. al. (1987) say that when individuals on the street were inquired about their understanding of ethics, they said that ethics have to do with internal feelings of what is right and wrong or that ethics can be religious beliefs or that ethics are laws. Some people considered ethics to be the acceptable behavior as per the rules of society with others simply did not know what it meant. Such statements may come naturally, given the context the word ethics is so often used in the media and other information sources, but it must be clarified that ethics have nothing to do with the internal feelings of a person (Alexandra & Woodruff, 1990). This is because the feelings and emotions of individuals about certain difficult issues may lead a person to do what is wrong rather than what is right. Additionally, social views can change and what is hated today as unacceptable may be perfectly acceptable depending on how the schemas of the individual are changed with time. For the FOMC, it might be useful to think of ethics as the laws which govern how the committee has to discharge their duties. The Federal Reserve certainly follows a set of laws which are quite useful and expansive but laws themselves are not the whole answer for ethics because all laws at all times may not be ethical. Consider the example of the discriminatory laws which were in place before the civil rights movement or the slave ownership laws before the American Civil war. If we take ethics to mean whatever laws are acceptable to society then it would be ethically acceptable to be anti-Semitic if a person were living in Germany during the Nazi era (Velasquez, et. al. 1987). Moreover, it is nearly impossible to accurately judge what is acceptable to society since the acceptance of certain things changes dynamically with time. Ethics in connection to finance and as they related to the FOMC have to be taken as the professionally given standards of right and wrong supported by reasonable arguments given by people in the field that explain how the committee ought to perform their duties. Therefore, the code of ethics that is supported by the Federal Reserve should be the code of ethics which is used by the FOMC. The code demands that the committee should focus on the needs of the economy and understand how their role affects Americans at large. This is because the security transactions made by the FOMC have a very powerful and immediate affect on short term interest rates and give guidance towards the long term outlook of the economy. As the FOMC depends on the fees provided by other banks and has links to commercial banks around America, it is likely that some of the members on the committee may be thinking what is good for the banking industry in particular rather than what is good for the American economy in general. In the world of finance, like several other industries, information becomes power and those are able to access information before the competition may be able to gain unfair advantages. Since the green book and the blue book are important sources of information, their security and protection becomes an ethical responsibility for the members of the committee since the information about the economy contained within those books becomes the basis on which the committee makes a decision. Simply put, the security of information for the FOMC is of primary importance until a decision is made and then the even distribution of the same information takes equal ethical importance. The last point of ethics which can be connected with the FOMC is to understand that the primary stakeholder for the body is not the government which created the body, or the banks which support the body or even the members themselves who represent the committee. The primary stakeholder is the American worker, the American farmer and the American family who may not really understand what the FOMC is doing or how the decisions of the FOMC will actually affect their mortgage rates, credit card interest rates or even the returns from their individual retirement funds. Even if they can not hold the FOMC personally accountable, the demands of ethics should be clear enough to show the FOMC that their decisions will affect the man on the street in more ways than one. Since that is the primary stakeholder for the FOMC, every decision made by this body should consider how they are helping the average American and all other considerations should be taken as secondary. Given the past performance of this organization, it seems likely that the future performance will remain as ethical as it has in the past. Works Cited Alexandra, A., & Woodruff, A. (1990). Ethics and the professions. Prentice-Hall. Amadeo, K. 2007, ‘Federal Open Market Committee’. [Online] Available at: http://useconomy.about.com/od/governmentagencies/p/FOMC.htm FRBP. 2007, ‘What is the FOMC’, [Online] Available at: http://www.phil.frb.org/education/fomc7.html Scanlon, C. 2000, A professional code of ethics. Nursing Ethics, 7(3), 262-268. Velasquez, M. et. al. 1987. What is Ethics? [Online] Available at: http://www.scu.edu/ethics/practicing/decision/whatisethics.html Read More